ICO

The ICO Dream

Fast and easy access to the capital needed to fund a blockchain based startup or project, without having to go through all the usual regulatory hurdles, was the fantasy of every wannabe tech innovator or entrepreneur. However, the potential benefits of the ICO dream are being overshadowed by both bad actors and reality. The ICO has no borders and can access investor funding globally, but that also means there no borders when it comes to the far-reaching security regulations of some countries.

ICO promoters, investors, and gamblers will only pitch the positives, even if they are highly unlikely to happen. Profit, future project success, supposed token utility, and a long list of promises on a whitepaper may be all you hear about. Anything regarding government or security regulations may simply get the Teflon coating – they claim immunity from regulation, or feel they are in compliance with all regulations (because they think they aren’t selling the tokens to U.S. investors, etc), or they simply don’t mention the word regulation at all. Staunch financial traditionalists that stand to lose their market as lenders or middlemen, as well as any other individual or business that is heavily invested in any area that is going to see disruption, may take a very hard line on ICOs. When the current ICO market cleans itself up, finds a solid balance between innovation and appropriate regulation that protects investors, somewhere in the middle of these two opposing views will be the dream ICO of the future.

An Initial Coin Offering (ICO) is a new method of raising capital for blockchain-based technology startups or projects. A new cryptocurrency is created and these ‘digital tokens’ are sold to interested investors, as well as speculators that are gambling on a significant price increase. In theory, it is an amazing method to quickly fund a startup. When undertaken properly with the guidance of a professional business mentor that has expertise in the cryptocurrency/blockchain space, or by a trusted NextGen Venture Capital organization, the chance of success will improve remarkably. These ICO projects need to be analyzed and vetted by an unbiased professional, before you can trust any of the claims made.

This guide is for those who are interested in investing in cryptocurrencies or ICO tokens, understand that it is high risk, but have no idea what to look for in the 1500 coins and tokens available. It is not intended as financial or investment advice, and does not make any specific recommendations. Its purpose is to give you an idea on what information you need to find, where to find it, what it may mean, and potential questions you need to get answers for. It is not a set of rigid rules, and there are always exceptions, but if a coin you are researching has too many red flags, you may want to look elsewhere.

This guide isn’t based on proven investment theory, rather it is an observation based compilation of what we have witnessed within the industry over the last 4+ years. Think of this as some of the missing parts to the standard advice of “do your own research”. Never accept a buy recommendation from anyone at face value – educate yourself, and always make your own decisions.

On December 11, 2017, SEC Chairman, Jay Clayton released the Statement on Cryptocurrencies and Initial Coin Offerings, providing potential investors with a lot to consider and investigate before they jump into something they know nothing about. Within that statement is a long list of questions that he recommends asking before you part with your money…

Originally published on DCEBrief, Jan 2018 Contained within several notices from the Canadian Securities Administrators (CSA), are clarifications of the regulations in place that can determine the legality of Initial Coin Offerings (also called Initial Token...

Fast moving digital currency markets have seen their fair share of winners and losers who became so swept up by the promise of quick profit, that their better judgement was gone with the wind. The long term consequences of this mentality may be less...

The U.S. Securities and Exchange Commission Division of Enforcement has released their annual report that included enforcement actions taken against various ICOs and blockchain companies. Outright fraud and the illegal sale of securities were the two forms...

It is very easy for newcomers to become lost amidst a swarm of hype and confusion surrounding cryptocurrency. A lot of them get so swept up by the thought of quick profit that they rarely take time to step back and analyze a system for what it is. Few take...

ICO’s are notorious for being an easy method to deploy scams, but with a little basic due diligence any investor can avoid these scams with confidence, and ensure that they are not enabling the wrong people. Some groups have raised billions of dollars with...

Cryptocurrency

A digital form of money that is governed by a set of rules agreed upon by the majority of a computer based financial network. Every transaction is recorded on a permanent public ledger called a blockchain, but the identities of the senders are protected. Cryptcurrency can be sent anywhere in the world almost instantly, and because it is a decentralized entity not controlled by governments or banks, it cannot be manipulated.

Coin

An individual unit of cryptocurrency is often called a coin, even though no physical form exists.

Howey Test

The result of a Supreme Court ruling in the case of the SEC v. W. J. Howey Co., (1946), set a precedent as to what constitutes a security. Any “investment contract” that meets the following criteria (the Howey Test) is deemed to be a security:

An investment of money;

with an expectation of profits arising from;

a common enterprise;

depending solely on the efforts of a promoter or third party.

ICO

An Initial Coin Offering (ICO) is an alternative method of raising capital for blockchain-based technology startups or projects. A new token is created and these ‘digital tokens’ are sold to interested investors, as well as speculators that are gambling on a significant price increase.

SEC

The Securities and Exchange Commission is an independent government agency that provides investor protection by overseeing and regulating all aspects of the issuing, buying, and selling of securities in the United States.

Security

Security – Investments that represent ownership interest or marketable debt that can be bought and sold, such as shares of a publicly traded company or bonds. Recent statements from the SEC have stated that most of the current ICO tokens fit the criteria to be classified as securities. The SEC provides a much broader definition of what constitutes a security:

The Security Acts of 1933: “The term ‘‘security’’ means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a ‘‘security’’, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.”

CHICAGO, IL / ACCESSWIRE / September 6, 2018 / In a new interview with DCEBrief, DNotes Global, Inc. CEO Alan Yong stressed the importance of ensuring that the cryptocurrency industry works to comply with existing government regulations. He specifically addressed the controversy surrounding initial coin offerings and suggested that the industry must change the way it uses that fundraising tool if it wants to avoid additional regulations to rein in ICO excesses.

Yong, whose company recently launched its first round of fundraising through Reg. D 506 (c), praised initial coin offerings as a truly innovative and inclusive way for companies to raise capital. “I believe that they are perhaps one of the most efficient means of capital formation we’ve ever seen,” he said. “The ICO’s ability to enable virtually anyone in the world to invest in a project can conceivably provide greater access to opportunity for more people than any other form of investor fundraising.”